Partnership Law Update

The recent case of Eaton v Caulfield [2011] EWHC 173 (Ch) has once again highlighted the importance of well drafted and constituted agreements in relation to limited liability partnerships. In Eaton v Caulfield the parties had established a recruitment agency for lawyers. The business had been incorporated as an LLP in March 2007 yet no written members’ agreement was ever entered into. Relations deteriorated, and after several months of hostilities and an acrimonious coffee break, Mr Caulfield summarily dismissed Mr Eaton from the LLP. Mr Eaton claimed under s994 Companies Act 2006 that his expulsion from the LLP was unfairly prejudicial.

The court agreed.

As there was no written members’ agreement in place between Eaton, Caulfield and the LLP; Mr Caulfield needed to show that a power of expulsion had been expressly agreed by all the members of the LLP. Given that most of the partnership discussions appeared to have taken place on an “alcohol-fuelled train journey from Leeds”, Mrs Justice Proudfoot held that Caulfield had failed to do so.

Mr Eaton’s petition under s994 was well founded: his exclusion from the LLP’s management was “one of the clearest examples of conduct which equity regards as unfair prejudice”.

An obvious outcome and one we would have all expected. The importance of a written members’ agreement cannot be understated.

For more information relating to LLPs please contact Peter Moore from our Professional Practices sector team.

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